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Deutsche Bank: Retail Sales - January 2000

Data Flash (New Zealand)
Retail Sales - January 2000

Key Points

Retail sales (nominal, s.a.) fell by 0.5% in January, following a 1.2% increase in December. Average market expectations had been for zero change.

Sales were 5.2% higher than in January 1999, compared to an annual rate of increase of 8.3% recorded for December.

It is evident in the data that the December/January volatility can largely be explained by Y2K influences. Households were stocking up on food, petrol, medications in December, followed by an unwinding of this effect in January. The pattern in our measure of non-durables sales confirms that interpretation (see chart).

The Y2K effect added to the usual volatility in the retail series, leading Statistics NZ to note its seasonal adjustments may not be accurate in this case. That suggests two things: - Not too much should be read into the comparatively weak result for January. - Secondly, potentially significant revisions should be expected for the December/January period.

It has been our interpretation that, given the pattern of a strong December quarter (which followed a record rise in Q3), Q1 should be seen as a period of consolidation at a high level of economic activity. Today's retail figures and other indicators over recent months have been consistent with that interpretation. That suggests that comparatively weak figures will be a temporary phenomenon, with the medium-term growth outlook remaining very favourable on the back of a competitive NZD, strengthening world growth and improving terms of trade.

As far as nominal retail sales are concerned, strong household income growth - due to growing employment, rising wage inflation and a bounce-back in farm incomes - should generate trend growth of 4-5% over the next year. Current levels of consumer confidence are consistent with that outlook, with the upturn in growth rates for durables (see chart) confirming positive household sentiment.

Today's data will not affect the RBNZ's decision on 15 March. We expect a 50 bps rise in the cash rate and a hawkish Monetary Policy Statement that hints at an aggressive tightening profile until early 2001.

Ulf Schoefisch, Chief Economist

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